The Definition of Entrepreneurship and Entrepreneurial Behavior

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Table of Contents

Management Summary
Introduction
The Economists’ Definition of Entrepreneurship and Entrepreneurial Behavior
The Psychologists’ Definition of Entrepreneurship and Entrepreneurial Behavior
The Sociologists’ Definition of Entrepreneurship and Entrepreneurial Behavior
Conclusion
Reference List

Management Summary

Different people define the term entrepreneurship and entrepreneurial behavior differently. To some people, entrepreneurship means new ventures while to others entrepreneurship is the creation of small and medium-sized businesses. To some people, entrepreneurship is the ownership of business while to others entrepreneurship is the generation of new ideas to do business, to produce goods and services, or to satisfy consumer needs. For instance, in his work, Mbhele (2012) defines entrepreneurship as:

An activity that involves the discovery, evaluation and exploitation of opportunities to introduce new goods and services, ways of organizing, markets, processes and raw materials through organizing efforts that previously had not existed (p. 94).

However, no standalone definition of entrepreneurship or entrepreneurial behavior suffices in all academic disciplines, as scholars continue to parse its definition. The most outstanding conceptualizations of entrepreneurship and entrepreneurial behavior arise from economics, psychology, and sociology. The economists define entrepreneurship from the industrial and market constructs while the psychologists define entrepreneurship from an individual and behavioural constructs. Conversely, sociologists define entrepreneurship from society constructs. This paper describes and critically analyses how academic economists, psychologists and sociologists have defined entrepreneurship and entrepreneurial behaviour.

Introduction

Entrepreneurship as a term is very elastic in the way people define it and the meaning they give it. To some individuals, entrepreneurship may mean businesses and startups backed by venture capitalists while to others entrepreneurship means any small and medium-sized business (SME). The term entrepreneurship has a fascinating history, and hitherto scholars continue to parse its meaning. For example, Eisenmann – a professor at Harvard Business School – (2013) asserts that the Harvard Business School uses a definition of entrepreneurship that Professor Howard Stevenson formulated. Stevenson defined entrepreneurship as “the pursuit of opportunity beyond resources controlled” (Eisenmann 2013, para. 2).

However, there is no universally-agreed-on definition of entrepreneurship. According to Simpeh (2011), scholars have put forward several theories rooted in management, psychology, anthropology, economics, and sociology to explain the meaning and the field of entrepreneurship and entrepreneurial behavior. Through a multidisciplinary exploration, herein is the definition of entrepreneurship and entrepreneurial behavior from the economic, psychological, and sociological entrepreneurship theories.

The Economists’ Definition of Entrepreneurship and Entrepreneurial Behavior

Classical and neoclassical theories of economics gave rise to the initial economic theorization of entrepreneurship and entrepreneurial behavior. Classical economics viewed an entrepreneur as a director of the production and distribution of goods using the land, labour, and capital (Simpeh 2011). Neoclassical economists saw entrepreneurship as a product of diminishing marginal utility and pure exchange within a fundamentally closed economic system.

However, the classical and the neoclassical economic schools of thought failed to be devoid of criticism and unanswered in their postulations of entrepreneurship and entrepreneurial activity. The Austrian Market Process (AMP) is the economic school of thought that tried to answer all questions and respond to all criticism to the abovementioned schools. Joseph Alois Schumpeter – an Austrian economist – greatly influenced the AMP whose interpretation of entrepreneurship arose from human activities within an economy of knowledge.

Schumpeter viewed an entrepreneur as a unique and creative person, who produces something new and creatively destroys a market in an economically stable environment and whose end is the implementation of a new idea (Bessant & Tidd 2015). An entrepreneur is an agent of change through creative destruction (or distraction) of the market equilibrium (Naude 2013). Another Austrian – Israel Kirzner – furthered on Schumpeter’s assertion adding that an entrepreneur has to be anyone alert to unbalanced profit opportunities (or gaps) in a market and can match the demand and supply in such a scenario as long as they have the knowledge and ability to implement the idea to fill the gap (Douhan, Henrekson & Eliasson 2006).

A Kirznerian entrepreneur is a leader whose whole job emerges from being alert to unnoticed gaps/opportunities within market systems or knowledge about market data that other people do not have or notice. Instead of the entrepreneur disrupting market equilibrium, they remove the disequilibrium through a short-run movement to a new equilibrium (Kirzner 1973). The eclectic American economist Frank Knight brought in a new twist to the Austrians’ view by introducing uncertainties and risks. In Knight’s view, an entrepreneur is a calculated risk-taker amidst uncertainties and one who bears ideas, specialized knowledge, and skills on how to bear uncertainty and gain profits as a reward.

From the first principles outlined above, several conceptualizations of entrepreneurship from an economist’s perspective arise. One is that entrepreneurship is a motivating power to individuals – entrepreneurs – to drive a manageable process that initiates new ideas to produce new products, production processes, or services, or ideas to better exists products, production processes, or services to produce value (Bessant & Tidd 2015). The process of initiating new ideas to develop something new or improve an already existing thing is entrepreneurial behavior. According to Mbhele (2012)

entrepreneurship is an activity that involves the discovery, evaluation and exploitation of opportunities to introduce new goods and services, ways of organizing, markets, processes and raw materials through organizing efforts that previously had not existed (p. 94).

Though not interchangeable, entrepreneurship and entrepreneurial behavior are inseparable. Whereas entrepreneurship is a power and an activity within an individual, entrepreneurial behavior is the tendency and process within the individual to participate in entrepreneurship; to pursue identified opportunities irrespective of available resources with openness to take a calculated risk and getting rewarded through profits.

From an economist’s perspective, therefore, the summative definition of entrepreneurship and entrepreneurial behavior has to include the generation of new ideas from gaps identified within the market taking calculated risks and getting rewarded for these risks through profits irrespective of the resources available. A notable addition to this postulation is that the entrepreneurship power or activity ends when competitors develop a new idea or copy the one an entrepreneur has developed. For instance, when Gillette introduced the Mach 3 razor, a UK retailer copied it with ease and produced a three-bladed razor at much lower costs than Gillette (Goffin and Mitchell 2017).

This example implies that entrepreneurship is not all about being first-to-market, it has to with being creative enough to minimize the possibilities of imitation or the development of a new idea which would jeopardize or even end the reward an entrepreneur draws from their enterprise. For instance, when Tetley introduced the rounded tea bags, instead of discussing the new production line and equipment with its supplier, it consulted and hired Cambridge Consultants Ltd to make a completely different manufacturing line for the round teabags (Goffin & Mitchell 2017). When Tetley’s teabags hit the market, competitors could not get similar production lines or equipment, and they could not imitate Tetley’s product.

The Psychologists’ Definition of Entrepreneurship and Entrepreneurial Behavior

Unlike in the economists’ case, the psychological conceptualization of entrepreneurship and entrepreneurial behavior arises from the analysis of individuals’ characteristics rather than from the market systems. According to Simpeh (2011), the emphasis of psychological entrepreneurship theory is personal characteristics in the definition of entrepreneurship and entrepreneurial behavior. Kobia and Sikalieh (2010) posit that:

Because the entrepreneur is the catalyst for entrepreneurship, this school posits that individuals are more likely to exploit opportunities, thus behave entrepreneurially, because traits lead them to make different decisions about opportunities than other people with the same information and skills (p. 113).

The personality trait theory is a psychological viewpoint that contends that an entrepreneur has inborn traits and qualities to be enterprising such as mental resilience, mental energy, optimism, intelligence, industry, perseverance, creativity and innovation in addition to learned behaviours like management skills and business knowledge (Simpeh 2011). The locus of control (LOC) theory is another psychological school that uses people’s perception of rewards and punishment for their actions in defining entrepreneurial activity. Additionally, there is the need for achievement theory which is a psychological framework that emphasizes that human beings possess the need to excel and succeed just like they have basic needs.

Undoubtedly, psychological attributes occupy a vital position in entrepreneurship, and in defining entrepreneurship, one cannot dismiss what psychologists have to say. McClelland developed the need for achievement theory and contended that the underlying drivers of achievement, affiliation, and power motivate people to enterprise (Royle & Hall 2012). As Simpeh (2011) records, “there is evidence for the relationship between achievement motivation and entrepreneurship” (p. 3).

Indeed, achievement motivation may be the only person-based factor that affects enterprise creation. Rotter fathered the LOC theory, which is a person’s belief about what between chance and personal actions control the outcomes of events in their lives (Ngwoke, Oyeuku & Obikwelu 2013). According to the LOC theory, an entrepreneur is an individual with an internal locus of control and believes that “that the outcomes of their actions are results of their abilities or efforts” (Ngwoke et al. 2013 p.49).

Ajzen developed the Theory of Planned Behavior (TPB) to predict and explain behavior in various contexts (Sabah 2016). According to the TPB, there are three precursors to entrepreneurship and entrepreneurial intention: “attitude towards entrepreneurial behaviour, perceived social norms and perceived behavior control, in other words, self‐efficacy” (Sabah 2016 p. 87). Following Ajzen’s model, becoming an entrepreneur is a conscious activity, and entrepreneurial behavior is a cognitive state and a product of personal, organizational and environmental factors (Palma, Cunha, & Lopes 2009).

In line with the assertions of the psychologist, several concepts that must feature in the definition of entrepreneurship and entrepreneurial behavior arise. First, entrepreneurship arises from individuals’ personal need for achievement. Secondly, entrepreneurship is a product of an active internal locus of control within persons who believe that their actions affect the outcomes of their life events. Lastly, entrepreneurship is a conscious activity, and entrepreneurial behavior is a cognitive state. Entrepreneurship, therefore, has to be the process of creating or discovering, assessing, and exploiting an opportunity that requires one to have the preparedness to either realize or exploit the opportunity discovered.

To put the psychologists’ perspective into a real-life case evaluation, consider Les Concierges as an example. Dipali Sikand founded Les Concierges, and according to Goffin and Mitchell (2017), Sikand’s idea to establish Les Concierges arose from her personal experience.

As a young employed mother, Sikan faced the challenge of attaining a work-life balance, and she realized that there were corporates that desired to help their employees to have people who can help the employees take care of matters they are unable to take care of themselves. As an individual, the need to achieve motivated Sikand and she believed that her actions would affect the outcomes of her life events. Also, the process of identifying the gap/opportunity was a conscious one, and her behavior was a cognitive state resulting from her personal, organizational, and environmental influences.

The Sociologists’ Definition of Entrepreneurship and Entrepreneurial Behavior

The economists define entrepreneurship from the industrial and market constructs while the psychologists define entrepreneurship from an individual and behavioural constructs. Conversely, sociologists define entrepreneurship from society constructs (Simpeh 2011). According to Ruef and Lounsbury (2007), sociologists analyze entrepreneurship and entrepreneurial action from the social context, process, and effect. Entrepreneurship is, therefore, narrowly a purposed action that leads to the creation of new formal businesses, or broadly any attempt to introduce long-lasting innovations in procedures, processes, technologies, business models, or social institutions (Ruef & Lounsbury 2007).

Sociologists’ school of thought on entrepreneurship has identified four social constructs useful in understanding entrepreneurial activity (Simpeh 2011). The first construct is social networks. In this construct, an entrepreneur focuses on building social ties that enhance trust without taking undue advantage of the people to succeed or earn profits. In the second construct – life course stage – Reynolds (1991) posited that people’s life experience might shape their entrepreneurial behavior because experiences influence a person’s actions and thoughts and may inspire them to do something meaningful.

Thirdly, Reynolds (1991) postulated what he called ethnic identification, and argued that a person’s sociological background, for example, their ethnic affiliation, is a decisive driver for a person to act entrepreneurially. In the fourth construct – population ecology – Reynolds (1991) argued that the survival of businesses much depended on the business’ environment. All elements within a firm’s environment – politics, government policy, consumer behavior, labour, and competition – impact a new venture and the success of an enterprise.

In his work, Tony J. Watson (2013) argued that sociologically, “Entrepreneurial action or entrepreneuring [Sic] is rooted in basic human processes of exchanging and trading which have occurred since prehistory” (p. 407-408). In this view, entrepreneurship appears as situated creativity, and the entrepreneur is an entrepreneurial actor. Watson’s postulations arose from the interplay between entrepreneurial actors’ life circumstances and the vast processes of history and social dynamism. Watson draws from pragmatism in terming entrepreneurship situated creativity. According to Watson (2013), the human race continually faces new circumstances and challenges in the course of their lives, and these circumstances and challenges constrain humans to act creatively to survive and flourish.

Nonetheless, the creativity of humans can only go as far as their life circumstances such as resources and technology can allow. Thus, an entrepreneurial actor or a person who behaves entrepreneurially has to

innovate,
act within the limits of social and economic circumstances,
understand that the social and economic circumstances they face in their environments are paradoxically both the enabling and limiting factors that shape their entrepreneurial behavior.

From the sociologists’ viewpoint of entrepreneurship, four concepts that must feature in the definition of this term emerge. One, entrepreneurial behavior is a process within the limits of social ties and social responsibility. Secondly, life experiences and circumstances shape entrepreneurship and entrepreneurial behavior, enabling and limiting entrepreneurial actions at the same time. Also, ethnic identification (or sociological background) shapes a person’s entrepreneurial behavior. Lastly, entrepreneurship is contingent upon an entrepreneur’s population ecology (environment) where politics, government policy, consumer behavior, labour, and competition shape all entrepreneurial actions.

To exemplify the sociologists’ conceptualization of entrepreneurship and entrepreneurial behavior, consider the Singapore Airlines case. According to Goffin and Mitchell (2017), the design of the airline’s service delivery gives outstanding customer satisfaction blending people-based and technology-based innovations. Additionally, the cabin crew of Singapore Airlines is renowned for their empathy and helpfulness as robustly promoted via the Singapore Girl advertisement.

The airline also gives its cabin crew lengthy and more detailed training compared to other airlines where part of the training requires the trainees to take some time in geriatric care homes for them to empathize with the problems the aged travellers face on board a flight. Elderly travellers are a growing customer segment that the airline targets. What this case shows are the constructs in society – such as empathy and ethnic identification – that define entrepreneurial activity.

Conclusion

Summarily, there is a consensus that the definition of entrepreneurship is elastic and scholars continually parse over the precise definition of this term. The most outstanding conceptualizations of entrepreneurship and entrepreneurial behavior arise from economics, psychology, and sociology. Economic theories of entrepreneurship define this term from market systems and industrial constructs. In the economist perspective, three elements feature in the definition: opportunity in a closed market system, innovation, and calculated risk.

The psychological theories of entrepreneurship differ from the economic theories in that they define entrepreneurship from the analysis of individuals’ characteristics rather than from the market systems. Four concepts characterize the psychologists’ definition of entrepreneurship: achievement motivation, internal locus of control, inborn traits, and conscious activity. Contrary to the economists and the psychologist, the sociologists define entrepreneurship with society as the point of reference. In the sociologists’ definition, four elements must feature social ties, life experiences, ethnic identification, and population ecology.

By and large, from the economic, psychological, and sociological schools entrepreneurship is the pursuit of identified economic opportunities within a closed economic system where the entrepreneurial actor bears an idea to exploit the opportunity, takes calculated risks, has motivation to achieve and a strong internal locus of control, as well as the knowledge and skill to execute the idea to earn profits. In completing this definition, entrepreneurship is a situated creativity, and the actor in this process innovates within their limits of social and economic circumstances in pursuit of economic opportunities.

Reference List

Bessant, J & Tidd, J 2015, innovation and entrepreneurship, 3rd edn, John Wiley & Sons, Chichester (England).

Douhan, R, Henrekson, M & Eliasson, G 2006, Israel M. Kirzner: an outstanding Austrian contributor to the economics of entrepreneurship, IFN Working Paper, No. 678. Web.

Eisenmann, T 2013, Entrepreneurship: a working definition. Web.

Goffin, K & Mitchell, R 2017, Innovation management: effective strategy and implementation, 3rd edn, Palgrave London, UK.

KIrzner, IM 1973, Competition and Entrepreneurship, abstract, University of Illinois at Urbana-Champaign’s Academy for Entrepreneurial Leadership Historical Research Reference in Entrepreneurship. Web.

Kobia, M & Sikalieh, D 2010, ‘Towards a search for the meaning of entrepreneurship’, Journal of European Industrial Training, vol. 34, no. 2, pp. 110-127. Web.

Mbhele, P 2012, ‘The study of venture capital finance and investment behaviour in small and medium-sized enterprises’, South African Journal of Economic and Management Sciences, vol. 15, no. 1, pp. 94-111. Web.

Naude, W 2019, Entrepreneurship and economic development: theory, evidence and policy, IZA Discussion Paper No. 7507. Web.

Ngwoke, D, Oyeoku, & Obikwelu, C 2013, ‘Perceived locus of control as a predictor of entrepreneurial development and job creation among students in the tertiary institution’ Journal of Education and Practice, vol. 4, no. 14, pp. 49-54. Web.

Palma, P, Cunha, M & Lopes, M 2009, ‘Entrepreneurial behavior’, in S Lopez (ed.), The encyclopedia of positive psychology, Blackwell Publishing, Boston, MA, pp. 338-342. Web.

Reynolds, P 1991, ‘Sociology and entrepreneurship: concepts and contributions’, Entrepreneurship Theory and Practice, vol. 16, no. 2, pp. 47-70. Web.

Royle, M & Hall, A 2012, ‘The relationship between McClelland’s theory of needs, feeling individually accountable, and informal accountability for others’, International Journal of Management and Marketing Research, vol. 5, no. 1, pp. 21-42. Web.

Ruef, M & Lounsbury, M 2007, ‘Introduction: the sociology of entrepreneurship’, Research in the Sociology of Organizations, vol. 25, no. 1, pp. 1-29. Web.

Sabah, S 2016, ‘Entrepreneurial intention: theory of planned behaviour and the moderation effect of startup experience’, in M Franco (ed.), Entrepreneurship – practice-oriented perspectives, InTech, Rijeka, Croatia, pp.87-101. Web.

Simpeh, K 2011, ‘Entrepreneurship theories and empirical research: a summary review of the literature’, European Journal of Business and Management, vol. 3, no. 6, pp. 1-8. Web.

Watson, T 2013, ‘Entrepreneurship in action: bringing together the individual, organizational and institutional dimensions of entrepreneurial action’, Entrepreneurship & Regional Development, vol. 25, no. 5-6, pp. 404-422. Web.

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